Mr Blair is keen to see a co-ordinated international response to the outrages and has already spoken to the leaders of Germany, France, Russia and Italy. He believes the crisis will be an important test of the unity of EU countries in facing the terrorist threat.

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Mr Blair was careful not to rule out military action by British forces. Unqualified support for the US could strain relations with other European allies as well as make Britain a target for further terrorist attacks.

He is aware of political concern in Britain that any American response should be proportionate and well-thought out. A number of Labour MPs are worried that a misguided response against the wrong target could inflame an already tense situation and lead to further terrorist attacks.

Mr Blair had a 20-minute telephone conversation yesterday with President Bush in which he promised British support for America's efforts to track down and punish those responsible for the attacks.

But he is understood to have pressed for a well thought-out response aimed at preventing further attacks rather than immediate reprisals. Shortly beforehand he had told a press conference that Britain would stand "shoulder to shoulder" with the America.

He said: "We all agreed that this is an attack not only on America but on the free and democratic world." The international community had to consider where such terror groups were, how they operated, how they were financed and supported and how they could be stopped.

Mr Blair said: "People of all faiths and all democratic political persuasions have a common cause: to identify this machinery of terror and to dismantle it as swiftly as possible."

Mr Blair declined to speculate on what sort of help Britain might offer the US. "But be under no doubt at all, we stand with the USA in this matter," he said.

Officials confirmed that British intelligence agencies are co-operating with their American counterparts and sharing the available information on possible suspects.

Mr Blair indicated that he believed Muslim fundamentalists were involved, but refused to be drawn on whether Britain - like America - suspected that Osama bin Laden was behind the attacks.

However, he said that possibility was under close consideration by British intelligence agencies as well as others around the world, in particular those in the USA.

In what was seen as an attempt to prevent any backlash against Muslims in Britain, he welcomed a strong statement of condemnation from the British Muslim Council.

Mr Blair said: "The vast majority of Muslims are decent, upright people who share our horror at what has happened. This is not a situation in which we should see this as a cause between the Muslim faith and the world, but between terrorism and the rest of the world, including the Muslim faith."

"The world now knows the full evil and capability of international terrorism which menaces the whole of the democratic world. To commit acts of this nature requires a fanaticism and wickedness that is beyond our normal contemplation."

Mr Blair said the security arrangements put in place in the immediate aftermath of the attacks on New York and Washington on Tuesday afternoon would continue at least for the rest of the day as a "precautionary measure".

But most of the City and businesses throughout the country were functioning normally.

The Cabinet's Civil Contingencies committee, chaired by Mr Blair, met again last night - the third meeting in 24 hours. Ministers, including David Blunkett, the Home Secretary, Geoff Hoon, the Defence Secretary, and Gordon Brown, the Chancellor, were updated on the latest intelligence reports. There will be an emergency meeting of the Cabinet this morning.

One item high on the agenda will be stepping up domestic security as well as new moves to identify and possibly outlaw extremist groups using Britain as a base.

Mr Blair did not rule out speculation that the Government could consider introducing identity cards.